Banking Crises In Argentina
Banking Crises in Argentina
The banking crises in Argentina originated in 2001 was a result of the weaknesses in the banking system in the 1990's and the policies of 2001 that damaged "the franchise value of banks by rendering the payment system ineffective" (Banking Crises Resolution).
The banking system weaknesses that materialized during the 1990's were:
1. A fixed exchange rate was maintained due to the fact that most of the lent dollars were borrowed to entities earning in pesos.
2. Government Risk. Public banks were holding a large share of government paper in their assets.
Argentina suffered from the transition of a dictatorship to a democracy. The dictatorship left the country with huge amount of debt. When democracy was reinstated in 1983, the new plans to institute the Argentine's economy demanded more debt. Soon, the interest payments on the acquired debts were so high that the government was unable to keep up with them. Inflation stretched to 200% per month in......
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